Abstract
Electricity systems in many nations are facing a radical makeover that will drastically reduce greenhouse gas emissions, increase system flexibility, incorporate new technologies, and shake up existing utility business models. But international power systems are remarkably diverse, and there will be no one-size-fits-all solution for this transformation. Conversations about the best ways to lower costs, keep the lights on, and deliver a cleaner power system are often plagued by arguments over whether utilities or markets are king or whether legislators or regulators should drive system evolution. There is no “right” answer to these questions: Electricity policy is heterogeneous and will remain so.
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Notes
- 1.
Trieu Mai et al., “Envisioning a Renewable Electricity Future for the United States,” Energy 65, Supplement C (February 1, 2014): 374–86, https://doi.org/10.1016Zj.energy.2013.11.029; Alexander E. MacDonald et al., “Future Cost-Competitive Electricity Systems and Their Impact on US CO2 Emissions,” Nature Climate Change 6 (January 25, 2016): 526.
- 2.
Sonia Aggarwal, “Clean Energy, Batteries Not Included (Op-Ed),” Live Science (blog), 2014, https://www.livescience.com/46973-clean-energy-storage-without-using-batteries.html.
- 3.
Stefan M. Knupfer et al., “Electrifying Insights: How Automakers Can Drive Electrified Vehicle Sales and Profitability” (McKinsey & Company, 2017), https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/electrifying-insights-how-automakers-can-drive-electrified-vehicle-sales-and-profitability.
- 4.
Jeff St. John, “UK’s National Grid Goes Big into Energy Storage with 201MW of Fast-Acting Batteries” Greentech Media (2016), https://www.greentechmedia.com/articles/read/uks-national-grid-goes-big-into-energy-storage-with-201mw-of-fast-acting-ba.
- 5.
Sonia Aggarwal and Jeffrey Gu, “Two Kinds of Demand Response” (Energy Innovation, 2012), http://energyinnovation.org/wp-content/uploads/2014/11/Two-Kinds-of-Demand-Response.pdf.
- 6.
Sonia Aggarwal and Michael O’Boyle, “Getting the Most from Grid Modernization” (Energy Innovation, 2017), http://energyinnovation.org/wp-content/uploads/2017/02/GridModernizationMetricsOutcomes_Feb2017.pdf.
- 7.
For a deep dive on the capital biases created by cost of service regulation, see Steve Kihm et al., “You Get What You Pay For: Moving toward Value in Utility Compensation, Part 1: Revenue and Profit” (America’s Power Plan, 2015), http://americaspowerplan.com/wp-content/uploads/2016/07/CostValue-Part1-Revenue.pdf; and Dan Aas and Michael O’Boyle, “You Get What You Pay For: Moving toward Value in Utility Compensation, Part 2: Regulatory Alternatives” (America’s Power Plan, 2016), http://americaspowerplan.com/wp-content/uploads/2016/08/2016_Aas-OBoyle_Reg-Alternatives.pdf.
- 8.
A host of resources on designing performance-based regulation can be found at “Going Deep on Performance-Based Regulation” (Energy Innovation: Policy and Technology, 2016), http://energyinnovation.org/publication/going-deep-performance-based-regulation/.
- 9.
Aas and O’Boyle, “You Get What You Pay For: Moving toward Value in Utility Compensation.”
- 10.
Ron Lehr, “New Utility Business Models: Utility and Regulatory Models for the Modern Era” (America’s Power Plan, 2013), http://americaspowerplan.com/wp-content/uploads/2013/10/APP-UTILITIES.pdf.
- 11.
Seth Nowak et al., “Beyond Carrots for Utilities: A National Review of Performance Incentives for Energy Efficiency” (American Council for an Energy-Efficient Economy, 2015), https://aceee.org/beyond-carrots-utilities-national-review.
- 12.
For more information on how regional transmission organizations function, see “Regional Transmission Organizations: The Basics” (Western Clean Energy Advocates, 2016), http://westerngrid.net/wcea/rso/.
- 13.
Mike Hogan, “Power Markets: Aligning Power Markets to Deliver Value” (America’s Power Plan, 2013), http://americaspowerplan.com/wp-content/uploads/2014/01/APP-Markets-Paper.pdf.
- 14.
For detailed examples of how wholesale market operators are adapting to value flexibility, see Robbie Orvis and Sonia Aggarwal, “A Roadmap for Finding Flexibility in Wholesale Markets” (America’s Power Plan; Energy Innovation, 2017).
- 15.
Brendan Pierpont et al., “Flexibility: The Path to Low-Carbon, Low-Cost Electricity Grids” (Climate Policy Initiative, 2017), https://climatepolicyinitiative.org/publication/flexibility-path-low-carbon-low-cost-electricity-grids/.
- 16.
Sonia Aggarwal, “Future Wholesale Markets and Implications for Retail Markets” (America’s Power Plan, 2017), http://energyinnovation.org/wp-content/uploads/2017/09/20170914_WholesaleMarkets-SoniaAggarwal.pdf.
- 17.
Jairo Chung et al., “Rate-Basing Wind Generation Adds Momentum to Renewables” (Moody’s, 2017), https://www.researchpool.com/provider/moodys-investors-service/us-power-and-utilities-rate-basing-wind-generation-adds-momentum-to-r/.
- 18.
Eric Gimon, “New Financial Tools Proposed in Colorado Could Solve Coal Retirement Conundrum,” Forbes (2017), https://www.forbes.com/sites/energyinnovation/2017/04/19/new-financial-tools-proposed-in-colorado-could-solve-coal-retirement-conundrum/#76c34c2311c5.
- 19.
Robbie Orvis, “The State of US Wholesale Power Markets: Is Reliability at Risk from Low Prices?,” Utility Dive (2017), https://www.utilitydive.com/news/the-state-of-us-wholesale-power-markets-is-reliability-at-risk-from-low-pr/443273/.
- 20.
Robbie Orvis and Eric Gimon, “The State of Wholesale Power Markets: Principles for Managing an Evolving Power Mix” Utility Dive (2017), https://www.utilitydive.com/news/the-state-of-wholesale-power-markets-principles-for-managing-an-evolving-p/447839/.
- 21.
Travis Houm, “Forget Tax Credits. These Two Federal Policy Changes Are a More Immediate Threat to Solar” Greentech Media (2017), https://www.greentechmedia.com/articles/read/these-two-federal-policy-changes-could-be-way-more-damaging-to-solar.
- 22.
Let’s say you have a solar project that has predictable, contracted cash flows of $1 million per year for the next 25 years. If the rate of return investors demand is 7 percent, then the project is worth $11.65 million. But if the rate of return rises just one percentage point to 8 percent, the value of the project falls 8.4 percent to $10.67 million. A rise to 9 percent reduces the value by 15.7 percent to $9.82 million.
- 23.
O. Zinaman, A.M. Miller, and D. Aent, “Power Systems of the Future” (National Renewable Energy Laboratory [NREL], 2015).
- 24.
Pierpont et al., “Flexibility.”
- 25.
It may be that utilities, which often own and operate these plants, are not reliable sources of information on the viability of retirement. Therefore, objective third-party analysis may be useful, and international organizations such as the 21st Century Power Partnership can help bolster analytical capacity. See https://www.21stcenturypower.org/.
- 26.
“Energy Efficiency: A Compelling Global Resource” (McKinsey & Company, 2010), http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/sustainability/pdfs/a_compelling_global_resource.ashx.
- 27.
Justin Guay et al., “Expanding Energy Access beyond the Grid: Five Principles for Designing Off-Grid and Mini-Grid Policy” (Sierra Club, 2014), https://www.sierraclub.org/sites/www.sierraclub.org/files/uploads-wysiwig/Expanding%20Energy%20Access%20Beyond%20The%20Grid%20Report%202014.pdf.
- 28.
Ibid.
- 29.
Ron Binz, et al., “Practicing Risk-Aware Public Utility Regulation” (Ceres, April 2012), http://www.raponline.org/wp-content/uploads/2016/05/ceres-binzsedano-riskawareregulation-2012-apr-19.pdf.
- 30.
Ryan Wiser and Mark Bolinger, “2016 Wind Technologies Market Report” (U.S. Department of Energy, 2016), https://energy.gov/sites/prod/files/2017/10/f37/2016_Wind_Technologies_Market_Report_101317.pdf Data taken from Office of Energy Efficiency & Renewable Energy, “2016 Wind Technologies Market Report,” https://energy.gov/eere/wind/downloads/2016-wind-technologies-market-report.
- 31.
Samuel A. Newell, et al., “Pricing Carbon into NYISO’s Wholesale Energy Market to Support New York’s Decarbonization Goals” (The Brattle Group, 2017), http://www.nyiso.com/public/webdocs/markets_operations/documents/Studies_and_Reports/Studies/Market_Studies/Pricing_Carbon_into_NYISOs_Wholesale_Energy_Market.pdf.
- 32.
Clyde Loutan et al., “Demonstration of Essential Reliability Services by a 300-MW Solar Photovoltaic Power Plant” (National Renewable Energy Laboratory, 2017), https://www.nrel.gov/docs/fy17osti/67799.pdf.
- 33.
Melissa Whited, Tim Woolf, and Alice Napolean, “Utility Performance Incentive Mechanisms: A Handbook for Regulators” (Synapse Energy Economics, 2015), http://www.synapse-energy.com/sites/default/files/Utility%20Performance%20Incentive%20Mechanisms%2014-098_0.pdf.
- 34.
Michael O’Boyle, “Designing a Performance Incentive Mechanism for Peak Load Reduction: A Straw Proposal” (Energy Innovation, 2016), http://americaspowerplan.com/wp-content/uploads/2014/10/Peak-Reduction-PIM-whitepaper.pdf.
- 35.
Whited, et al., “Utility Performance Incentive Mechanisms.”
- 36.
Michael Milligan, “Capacity Value of Wind Plants and Overview of U.S. Experience” (Stockholm, Sweden, 2011), https://www.nrel.gov/docs/fy11osti/52856.pdf.
- 37.
Andrew Mills and Ryan Wiser, “Implications of Wide-Area Geographic Diversity for Short-Term Variability of Solar Power” (National Renewable Energy Laboratory, 2010), https://escholarship.org/uc/item/9mz3w055.
- 38.
“Quarterly Benefits and Greenhouse Gas Reports” (Western Energy Imbalance Market, 2017), accessed December 14, 2017, https://www.westerneim.com/Pages/About/QuarterlyBenefits.aspx.
- 39.
Andrew Liu et al., “Co-Optimization of Transmission and Other Supply Resources” (Eastern Interconnection States’ Planning Council; National Association of Regulatory Utility Commissioners, 2013), https://pubs.naruc.org/pub.cfm?id=536D834A-2354-D714-51D6-AE55F431E2AA.
- 40.
MacDonald, et al., “Future Cost-Competitive Electricity Systems and Their Impact on U.S. CO2 Emissions.”
- 41.
For a more detailed discussion of performance metrics for publicly owned utilities, see Michael O’Boyle and Sonia Aggarwal, “Improving Performance in Publicly-Owned Utilities” (America’s Power Plan, 2015), http://americaspowerplan.com/wp-content/uploads/2015/12/ImprovingPerformancePubliclyOwnedUtilities.pdf.
- 42.
For a fuller picture of decoupling and its design options, see Jim Lazar, Frederick Weston, and Wayne Shirley, “Revenue Regulation and Decoupling: A Guide to Theory and Application, Second Printing” (Regulatory Assistance Project, November 2016), http://www.raponline.org/wp-content/uploads/2016/11/rap-revenue-regulation-decoupling-guide-second-printing-2016-november.pdf.
- 43.
Gimon, “New Financial Tools Proposed in Colorado Could Solve Coal Retirement Conundrum.”
- 44.
Robbie Searcy, “ERCOT Breaks Peak Record Again, Tops 71,000 MW for First Time,” ERCOTNews Releases (blog), August 11, 2016, http://www.ercot.com/news/releases/show/103663.
- 45.
Mark Watson, “Wind Hits New Monthly Record for Share of ERCOT Energy” (Platts, 2017), https://www.platts.com/latest-news/electric-power/houston/wind-hits-new-monthly-record-for-share-of-ercot-21410272.
- 46.
Herman Trabish, “Texas CREZ Lines Delivering Grid Benefits at $7B Price Tag,” Utility Dive (2014), https://www.utilitydive.com/news/texas-crez-lines-delivering-grid-benefits-at-7b-price-tag/278834/.
- 47.
“ERCOT Generator Interconnection Status Report” (ERCOT, 2017), http://www.ercot.com/content/wcm/lists/114799/GIS_REPORT_October_2017.xlsx.
- 48.
Ibid.
- 49.
“A Wind Vision for New Growth in Texas” (Wind Energy Foundation; American Wind Energy Association, 2015), http://awea.files.cms-plus.com/TEXAS%20REPORT_11_16_15.pdf.
- 50.
Eric Gimon, “Texas Regulators Saved Customers Billions by Avoiding a Traditional Capacity Market” Greentech Media (2016), https://www.greentechmedia.com/articles/read/texas-regulators-save-customers-billions.
- 51.
Robbie Searcy, “ERCOT Reports Indicate Enough Generation Resources for Summer, Coming Years” (ERCOT, 2017), http://www.ercot.com/news/releases/show/123359.
- 52.
Paul Noothout, et al., “The Impact of Risks in Renewable Energy Investments and the Role of Smart Policies” (ECOFYS, 2016), 40, http://diacore.eu/images/files2/WP3-Final%20Report/diacore-2016-impact-of-risk-in-res-investments.pdf.
- 53.
Ibid., 112.
- 54.
David Nelson, et al., “Policy and Investment in German Renewable Energy” (Climate Policy Initiative, 2016), https://climatepolicyinitiative.org/wp-content/uploads/2016/04/Policy-and-investment-in-German-renewable-energy.pdf.
- 55.
“2014 Amendment of the Renewable Energy Sources Act (EEG 2014)” (International Energy Agency, 2014), https://www.iea.org/policiesandmeasures/pams/germany/name-145053-en.php.
- 56.
“Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz EEG)” (International Energy Agency, 2004), https://www.iea.org/policiesandmeasures/pams/germany/name-22369-en.php.
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© 2018 Hal Harvey, Robbie Orvis, and Jeffrey Rissman
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Harvey, H., Orvis, R., Rissman, J. (2018). Complementary Power Sector Policies. In: Designing Climate Solutions. Island Press, Washington, DC. https://doi.org/10.5822/978-1-61091-957-9_6
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